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MANAGER'S
VIEW
Volume I August-September 2010
FII Flows Seem Inevitable!
T he National Center for Policy Research (NCP) in the US released a
research note on the current health of US state pension funds*
Some observations in the report show potential that could benefit
capital markets in Emerging Markets like India. The total unfunded
liability in those state pension funds are estimated at USD 1.03 trillion
(assuming that assets in these funds earn 8% annual return for the
rest of their life). However, given the state of the global economy and
a likely prolonged low interest rate scenario, realistic estimate of
these liabilities are in the vicinity of USD 2 trillion. And while these
estimates are only for state owned pension funds, the actual size of
underfunding is much larger, probably even twice or more! Add this
to the gap in the Euro region and the estimate would probably be
upwards of USD 5 trillion.
Now, if these funds have to generate an annualized return of 8%
then they have to start investing into relatively riskier asset classes. To
that, Emerging Markets are likely to be the most favored
destination. The current total market cap of BSE500 index is about
USD 1.32 trillion (source Bloomberg). Hence over the long term, the
prolonged low growth scenario of US and Euro region with lower
interest rates will likely bode well for the Indian capital markets
which can hope to get more than their fair share of allocations from
such investors.
During August, the confusing nature of US economic recovery has
clearly influenced the global capital markets. On the optimistic side,
corporate results in the US and Europe region have been inching
higher with consensus expected earnings growth for S&P 500 at
15%. While on the pessimistic side, the voices forecasting a double
dip recession in the US have become stronger than ever. This can be
evidenced in some form with the US 10 Year Treasury yield
strengthening from 2.90% to 2.46% in August. There are also
proponents who believe the US is going the Japan way, implying low
GDP growth in a deflationary environment. The US government and
the US FED have assured at several forums that they are committed to
economic growth implying possibility of another leg of stimulus.
Employment creation remains sluggish and there are very bleak signs
of spending shifting from government led consumption to private
led consumption. Global markets have become increasingly driven
by data being released by various agencies on the economy, primarily
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US. The number of economic indicators released just in the US is
around 5 in a day which is firstly very large and second, in these
uncertain market conditions have made decision making confusing.
While the US employment data and housing data were dampners,
Euro region GDP and economic confidence indicators were positive.
Back home, the delay in launch of GST by April-11 is possibly a major
setback for our economic growth and for expectations of further
productivity improvements. This coupled with a DTC that has nearly
turned out be a non-event is probably signaling a lack of resolve in
rolling out the reforms agenda. However, the Indian GDP growth for
the first quarter was a healthy 8.8% (YOY) driven by a 7.6% increase
in fixed capital formation and 14.2% increase in government
expenditure. The ongoing monsoon has be in line with the average
monsoon India has received over the past 25 years and will help in
easing inflation which is majorly driven by rising primary food
articles prices. This easing of inflation and expectation that the
economy might now grow at a rate lower than that seen in Q1 is
leading us to believe that rate tightening pace by RBI will likely ease
out.
August wasn't a very good month for risky asset classes globally.
Fixed income, gold, silver, the Yen, India and Hong Kong were the
only ones in the green. The large cap Nifty Index in India was up by a
small 0.67% with outperformers being consumer durables, FMCG
and banking. The current risk aversion level in the global economy is
visible in stellar returns from Silver (7%) and Gold (6%). The liquidity
in the fixed income market has eased considerably and the call
market rates relaxed back to about 4.6% from 5.6% levels during
July. The 10Y G-sec yields (GIND10Y) however hardened further by
another 13 bps to 7.95% implying that the market is still skeptical on
easing of inflation .
TM
*Source: http://www.ncpa.org/sub/dpd/index.php?Article_ID=19634
PORTFOLIO
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Volume I August-September 2010
NAVIGAT R

Summary

ING Adapt is a Multi Asset product which uses Active and Dynamic Asset Allocation to generate
risk adjusted optimal returns. ING ADAPT offers 5 different investment options based on different TM

client profiles. The investment options are classified as Very Conservative, Conservative, Moderate,
Aggressive & Very Aggressive. The asset allocation will be monitored actively to keep in line with the
defined risk bands for each of the investment options.

Key Benefits

l An Actively Managed Asset Allocation Product

• Asset Allocation product investing into Equity, Debt, Gold and Cash (Portfolio consists of: Equities -
Direct Equities, ETFs; Gold - Gold ETFs; Debt - Mutual Funds, Cash - Mutual Funds, ETFs)
• Flexibility to chose an investment option based on your risk profile
• Each of the investment options is classified based on the ability to take downside risk in the
Portfolio.
• Risk is clearly defined for each of the options in the form of semi deviation targets
• Process run Portfolio, avoiding human bias
• The Portfolios are continuously monitored keeping the investments in line with the chosen
risk tolerance

Investment Process

Constraints
Semi Deviation Targets*

Very Conservative : 0 – 1.5%

Conservative : 0 – 3.5%
Moderate : 0 – 5%
Aggressive : 0 – 7%
Very Aggressive : 0 – 10%

Estimated Asset Returns

Portfolio#
Optimization For All
Estimated Asset Risks Risk Bands
• Volatility
# Portfolio Consists Of:
• Semi Deviation
Equities Direct Equities, ETFs
• Expected Maximum
Draw Down Gold Gold ETFs

Debt Mutual Funds, ETFs

Cash Mutual Funds, ETFs

* Semi deviation evaluates the fluctuations in returns below the mean. It provides an effective measure of downside risk for a portfolio. It's similar to standard deviation, but it only looks at
periods where the portfolio's return was less than the target or average level. This allows investors to see how much loss can be expected from a portfolio, instead of only looking at its
expected fluctuations, although there is no assurance that this semi deviation target will be achieved. The endeavor is to contain the portfolio semi deviation to defined target level.
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Volume I August-September 2010
NAVIGAT R

Performance Attribution

Very Conservative (As on 31st Aug'10) Conservative (As on 31st Aug'10)

Asset Class Model Contribution to Model Asset Class Model Contribution to Model
Portfolio Weight Portfolio Performance Portfolio Weight Portfolio Performance
Gold ETF* 22.22% 1.26% Gold ETF* 25.87% 1.53%
Nifty ETF# 22.38% -0.09% Nifty ETF# 47.65% -0.18%
Liquid + Short Term 37.38% 0.18% Liquid + Short Term 17.10% 0.08%
Gilts 18.01% 0.07% Gilts 9.38% 0.04%
Total 99.99% 1.42% Total 100.00% 1.47%

Moderate (As on 31st Aug'10) Aggressive (As on 31st Aug'10)

Asset Class Model Contribution to Model Asset Class Model Contribution to Model
Portfolio Weight Portfolio Performance Portfolio Weight Portfolio Performance
Gold ETF* 29.20% 1.67% Gold ETF* 26.12% 1.50%
# #
Nifty ETF 54.21% -0.23% Nifty ETF 56.80% -0.25%
Liquid + Short Term 9.99% 0.05% Liquid + Short Term 10.75% 0.05%
Gilts 6.58% 0.03% Gilts 6.33% 0.03%
Total 99.98% 1.52% Total 100.00% 1.33%

* Benchmark Gold Bees

# Benchmark Nifty Bees Very Aggressive (As on 31st Aug'10)
Asset Class Model Contribution to Model
Portfolio Weight Portfolio Performance
Gold ETF* 33.92% 2.02%
Equity 66.08% 3.00%
Liquid + Short Term 0.00% 0.00%
Gilts 0.00% 0.00%
Total 100.00% 5.02%

Note: The portfolio and performance of actual portfolios of clients may vary for due to factors such as timing of entry and exit, timing of additional flows and
redemptions, individual client mandates, specific portfolio construction characteristics or structural parameters. These factors may have bearing on individual portfolio
performance and hence individual returns of clients for the said portfolio type may vary significantly from the data on performance of the portfolio depicted above.
Neither the Portfolio Manager, nor its Directors or employees shall in any way be liable for any variation noticed in the returns of individual portfolios.

Market Review
The month was characterized by negative data emanating out of US and the global markets drifting downwards. Amidst this the
Indian markets held on for the month with the benchmark indices delivering positive returns albeit marginally. Good monsoon
throughout the month boosted sentiments. On the reforms front dampener was evident with GST bill not getting tabled and
a very diluted version of DTC passed by the parliament. On the latter as well the implementation has been postponed by an year
and will get effective from 1st April 2011.
Restoration of long term capital gains benefit and changes in the short term capital gains slab ( 50% of the marginal
tax rate of the assesses) in the DTC brought some cheers to the market. The Nifty and BSE Sensex clocked gains of
0.65% and 0.93%. The Consumer Staples, Financials and Industrials were relative out performers, while Telecom and Energy
underperformed.

Portfolio Performance

All the ING ADAPT portfolios generated positive returns predominantly aided by a 5.95%* rise in gold prices in the month of
August. The other asset class of liquid funds and gilt funds also supported the performance by delivering positive returns. The
equity component represented by Nifty ETF detracted performance as it delivered negative returns albeit marginally.

*Performance based on the model portfolio constructed using the proprietary quant strategy, before charging any expenses. The portfolio and performance of actual
portfolios of clients may vary for due to factors such as timing of entry and exit, timing of additional flows and redemptions, individual client mandates, specific portfolio
construction characteristics or structural parameters. These factors may have bearing on individual portfolio performance and hence individual returns of clients for the said
portfolio type may vary significantly from the data on performance depicted above. Neither the Portfolio Manager, nor its Directors or employees shall in any way be liable for
any variation noticed in the returns of individual portfolios.
PORTFOLIO
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Volume I August-September 2010
NAVIGAT R
PORTFOLIO SPECIFIC RISK FACTORS:
1. The value of the Portfolio investments may be affected generally by various factors affecting securities markets, including price and volume volatility in the capital markets, interest
rates, currency exchange rates, changes in policies of the Government, taxation laws or any other appropriate authority policies and other political and economic developments.
Consequently, the portfolios may fluctuate and can go up or down.
2. Liquidity of the securities in the portfolio may be restricted by the trading volumes, settlement periods and transfer procedures. Different segments of the Indian financial markets
have different settlement periods and such periods may be extended significantly by unforeseen circumstances leading to delays in receipt of proceeds from sale of securities. The
Portfolio value can fluctuate due to various factors that affect the capital markets in general.
3. The monies to the extent invested in Debt & Money market securities or Debt & Money market mutual fund schemes, are subject to credit risk and interest rate risk associated with
the portfolio and underlying securities. Though the liquidity is provided daily by the underlying mutual funds or ETF manufacturers, there can be markets conditions of delayed
liquidity
4. While securities that are listed on the stock exchange carry lower liquidity risk, the ability to sell these investments is limited by the overall trading volume on the stock exchanges.
5. All investments under the Portfolio carry an inherent risk due to several factors such as market conditions. The Portfolio Manager would not be liable for any loss caused to the
investor by reason of an investment advice made by or on behalf of the investor, whether on the advance of the Portfolio Manager or otherwise. They will however ensure that
reasonable care and skill are employed while tendering such advice or making investments on behalf of the client.
6. The Portfolio Manager will also not be liable for any bona fide act of omission or commission or delay in carrying out the instructions of the client.
7. The portfolio manager does not guarantee any capital protection for any of the risk profiles. The portfolio manager would attempt to stay within the risk bands for each of the risk
profiles on a best effort basis
8. The portfolio Manager is not responsible for risk profiling of prospective and existing investors. The investor should read the disclosure document and terms and conditions of the
product properly before making any investment decision.

ING Investment Management (India) Private Limited is registered with SEBI as a Portfolio Manager (“Portfolio Manager”).
Important Disclosures: This Document is for information purpose only. This Document and the Information do not constitute a distribution, an endorsement, an investment advice,
an offer to buy or sell or the solicitation of an offer to buy or sell any securities or any other financial products/investment products (collectively “Products”) mentioned in this
Document or an attempt to influence the opinion or behavior of the Investors/Recipients. Any use of the Information / any investments and investment related decisions of the
Investors/Recipients are at their sole discretion & risk. Please read the Disclosure Document carefully before investing. Investments in Portfolio Management Products are
subject to market risks due to various micro and macro factors and forces affecting the capital markets which include price fluctuation risks. There is no assurance or
guarantee/warranty that the objectives of any of the Products will be achieved. The investments may not be suited to all categories of Investors/Recipients. As
with any investment in any securities, the value of the portfolio under any Product can go up or down depending on the factors and forces affecting the capital
market. The investment objective of the ING ADAPT is to generate long term capital appreciation by investing in multiple asset classes, according to the risk-return profile of
investors and each of the 5 plans has a quantitative driven asset allocation which is based on satisfying the needs to a specific risk-return profile. The strategy aims to maximise return
subject to the maintenance of risk bands. ING ADAPT is only the name of the Portfolio Management Strategy and does not in any manner indicate either the quality of
the Strategy or its future prospects and returns. The past performance of the Portfolio Manager and/or its affiliates is not indicative of future performance.
Investors/Recipients are not being offered any guaranteed or assured returns. Investors/Recipients must make their own investment decisions based on their own specific
investment objectives, their financial position and using such independent professional advisors, as they believe necessary, before investing in such Products. The Portfolio Manager,
its affiliates/associates, their directors, employees, representatives or agents shall not be liable or responsible, in any manner whatsoever, to any Investor/Recipient or any other
person, for the performance/profitability/operations of the Products, the contents of any document or any investments in the Products including any and all direct, special, punitive,
indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages.